Joe DiRocco does not expect the aggressive pace of dealmaking activity in Northeast Ohio to slow any time soon.
“The private equity shops are very active right now,” says DiRocco, regional president, Northeast Ohio, at Fifth Third Bank. “They are working diligently to put their funds to use. Some of the positives you get out of this are not only dealmaking between private equity firms and business owners, but you have people looking at what can be done holistically as a business. There are people looking at organic growth as much as making a new deal.”
DiRocco came to Fifth Third Bank in May 2017, succeeding Jerry Kelsheimer. Previously, he was at Citizens Bank, where he served as president for the Ohio region. He has deep experience in middle-market commercial lending as well as asset-backed lending.
As one of Cleveland’s leading bank executives, DiRocco is keenly focused on what the financial sector can do to position business owners to make a good deal. Successful dealmakers work with financial professionals to understand the full impact of a transaction and what it means for their company going forward.
DiRocco spoke with Smart Business Dealmakers about what you should know about your business before you pursue your next M&A transaction.
What role should timing play in plotting your company’s M&A strategy?
We work very closely with businesses on a day in, day out basis on exactly this concept. As a business owner, what is your purpose for the company? It goes beyond what the company manufactures and what it makes. What do you want for your families? Is it multi-generational wealth? Do you want to have the next generation come into the business? It’s important to have a long-term growth strategy with the realization as to what you can achieve with the business you have.
If you can think about the importance of understanding things like debt capacity and the cost of capital, you can find ways to develop a strategy and proactively grow from an organic standpoint or through a potential acquisition. There are times when businesses miss opportunities because they are not prepared. We try to advise people to be ready. When an opportunity presents itself, you want to be able to capitalize on it.
Perhaps there is that one company that you’ve always looked at and thought, ‘We’d love to own them, but they’re just not for sale.’ So you don’t worry about it. Then you get that phone call and find out that the business was just sold and you didn’t have a chance to take a look at it.
Be prepared for those opportunities. Take a look at what it would take to get it done, but also be prepared on some of the technical aspects of a potential deal. Make sure you have the financial ability to pull it off. Know some of those details so you have an idea of what you can actually achieve. I’m not saying that every business should make a deal. But it certainly should be part of your thought process or else you’re missing a huge opportunity.
What’s the most difficult part about getting a deal done?
Often, it’s understanding and having a firm knowledge of the balance sheet, the cost of capital and the debt capacity of a business. In other words, you should be looking at businesses and deals that you can get done and execute. Sometimes that requires a third party to come alongside as a co-investor. Those relationships should be built out proactively, not at the last moment. Take the time to build a solid relationship so when the opportunity presents itself, you have knowledge, you understand the culture and you understand how your co-investors would act.
On the other side, when you’re looking to sell a business, make sure you’ve done a good job to prepare yourself. Prioritize your objectives. What you want to achieve with a potential sale? Whether you’re buying or selling a business, engage your personal wealth adviser. If you own a business and you go out and do a large acquisition, it probably changes some of your needs and some of the things you might need done down the road to put yourself in a safe place, whether it’s insurance or other investment parameters.
Have a firm understanding of your company’s value. There are times where business owners have a different viewpoint of the value of their business compared to the market. Trying to settle that before you engage in a transaction is really helpful.
How do you keep ego from getting in the way as a leader?
There’s a quote I use all the time from President Woodrow Wilson: ‘I not only use all the brains I have, but all that I can borrow.’ Sometimes, we just have a different knowledge base and a different experience base. When we can lock into people that have those dynamics that can help us think through what we’re doing and really put thought behind it, as well as help us execute, we can do some really good things collectively as a team.
How to reach: Fifth Third Bank, www.53.com